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Financial Planning > Trusts and Estates > Estate Planning

State of Estate Taxation

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The golden age of estate planning/wealth transfer is upon us. The stars, moon and earth have aligned to make this a key area for us in the financial services industry.

We know that the baby boomers, individuals between the ages of 48 and 64, represent nearly 30% of the U.S. population. These people understand their mortality and are receptive to estate planning, since it is more real to them at this stage of their lives.

We also know that trillions of dollars will pass hands over the next several decades. When you add together the large number of older people with large dollar amounts, it equals the need for significant planning and counsel on wealth transfer for years to come. On top of these favorable circumstances, we also have an immediate concern about where people stand in their estate planning efforts, given the fact that estate taxation is in a “state of confusion” and change.

Put these factors together and you have an ideal time for prospecting and growing your client base in this increasingly important area of wealth transfer and estate planning.

Where are we?

In 2001 the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) was passed that called for the elimination of the federal estate taxes in the year 2010. The legislation was passed, but the sunset provisions impacting this legislation mandated that the pre-EGTRRA estate tax code be reinstalled the following year 2011. In essence, the 2001 law eliminated the federal estate tax for one year.

At the end of 2009 nearly all commentators and estate planners felt that Congress would pass legislation that would, minimally, patch the 2009 federal estate tax status into 2010. That did not happen. Congress, dominated by health care reform, didn’t deal with federal estate taxation.

We’re now in an anomalous situation. We have no federal estate tax (FET) or generation skipping taxes (GST) for 2010. Both taxes, however, come rushing back in 2011.

Current law gives us only a one-year hiatus from federal estate and GST taxation. If nothing is done by Congress this year, these taxes come back to levels not seen since the year 2000 (pre-EGTRRA 2001).

For one year only, we have a modified capital gains tax system.

The issue is, what will Congress do? The 3 most probable Congressional options are:

(1) Do nothing and let 2011 law come into effect on January 1, 2011.

(2) Reinstate FET and GST taxes, perhaps freezing the 2009 law and making it retroactive to the January 1, 2010.

(3) Reinstate FET and GST taxes and do not make it retroactive.

The 1st and 3rd option may become more appealing as time goes by if Congress fails to act. More estates will be opened and more controversy will result if retroactivity is imposed on those estates.

Option 1

If the old law comes back into play, then all planning done in the last several years, using higher applicable exclusion amounts will need to be reevaluated. This generates more planning activity and likely more business for the financial advisors.

Option 2

If Congress makes the 2009 law permanent, then it’s business as usual after taking action.

Option 3

If Option 3 happens, then estate lawyers and planners have a window of opportunity to take advantage of the fire sale on gift taxation (the top gift tax rate this year fell to 35% from 45% in 2009) and a year without GST taxes. Some clients may wish to take advantage of this gap in the law.

Regardless of Congress’ action, clients need to know the risks of doing nothing this year. First and foremost is the danger of dying in 2010.

To be prepared, clients need to decide whether to modify or amend previously created estate planning documents that contain formulas related to the applicable exclusion amount. Without FET in place, bypass/credit shelter trusts have no basis for the formulae written in the document. Clients also need to determine whether to modify documents pertaining to the amount of property to be placed in trust.

Second, clients and prospects should be advised of this gap planning opportunity. Yes, there is risk, but clients who are risk-takers may wish to take advantage of the reduced gift tax rate and no GST.

Practice Growth Opportunity

What this anomalous situation adds up to is a marketing and prospecting opportunity. Clients you may not have engaged recently for estate planning can be re-approached and given value-added information. This is a golden opportunity to renew relationships and carry them forward.


What seems like a situation filled with uncertainty and angst may give the advisor and planner a marvelous opportunity to expand their business. Both the client and advisor will benefit from the process.

Don Schreiber, JD, CLU, ChFC is director of advanced sales for Nationwide Financial Services, Columbus, Ohio. He can be reached at [email protected].


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